Apple: The Latest Tech Company to Pivot to Services

A few years ago, there was a fairly ubiquitous phrase that hovered over the world of Media. Whenever writers were let go or a publication announced a new emphasis on video content, the “pivot to video” was more often than not the reason (or culprit, depending on your perspective). This so-called “pivot” was one from written content to video content, and regardless of whether it was the result of media consumption trends or advertising, it was a signal of a shift in strategy, a signal not unlike the one Apple made recently.

At it’s March 25th “It’s Show Time” Event, Apple announced several new products, which is what usually happens as these gatherings, but what separated this event from previous ones was that no new hardware was announced. (New iMacs and iPads were announced in prior weeks.) There was Apple TV+, the company’s long-awaited Netflix competitor; Apple News+, a digital newsstand subscription; Apple Arcade, a game subscription service for mobile games; and the Apple Card, which is something in between a credit card and a rewards card.

None of these “products” require new hardware, and they’re not even really products because they’re services, which, like they’ve always been, is an exchange of money for something that’s intangible. When you pay for these subscriptions, or any similar kind of service, you don’t own the TV shows, or the magazines, or the games, you pay for entry into a digital space where Apple’s curators provide you with those things.

As is the case with most things, the timing is significant. A qualifier that often appears now in Apple-related news is that Apple was the first company to reach a $1 trillion valuation, a mark the company reached in August 2018. News that was less publicized: Apple’s sales greatly declined to end 2018, with its stock following suit, including its worst one-day drop in half a decade.

This adds a lot context to Apple’s announcements. Apple would not be the first business to venture into selling services as a way of counteracting stagnating sales of physical goods. Look no further than the $1 Trillion Club.

After its arrival as a book-seller, Amazon branched out and now Amazon Web Services makes up for half of the company’s revenue. Since then it’s also introduced it’s own video-streaming service; purchased Audible, the audiobook service; as well as Twitch, the video game-streaming service, and while Amazon sells more things than it ever has, one could argue that the core of what makes it all work is the shipping benefits that come with an Amazon Prime subscription, which, you guessed it, is a service.

Microsoft, which has not yet reached the $1 trillion mark but is predicted to be the next to do so — it surpassed Apple in valuation at one point after Apple’s valuation reverted to sub-$1 trillion — was in somewhat of a rut in the past decade until it got out of the smartphone business and embraced cloud services. On Microsoft’ turnaround, David B. Yoffie told the New York Times, “the essence of what [CEO] Satya Nadella did was the dramatic shift to the cloud. He put Microsoft back into the high-growth business.”

Which brings us back to Apple. This isn’t entirely new territory for the company. One could argue that the iTunes Store, while being a store, is technically a service. The App Store, while also a store, is really a service for developers to distribute their work. However, I’m dubious about the potential of these new services. Apple TV+ is probably too late to the party, Apple News+ doesn’t really do anything new, and the size of the market for paid mobile games is probably not big enough to be of significance.

That being said. I think it’s safe to say that these services will do better than they actually deserve, just solely because it’s Apple and many already in the Apple ecosystem will likely give it a shot, which is a big factor in Apple Music’s success. For Apple, this makes sense. As Yoffie alludes to, services is a high-growth business. There aren’t the manufacturing costs and supply-chain problems that comes with selling hardware, the margins are better, and it’s relatively easy to get out if it fails.

Now, this isn’t to say that Apple will stop selling hardware. Apple’s hardware business is so established that it can practically run itself. The kids are off to college, which doesn’t mean they can now be neglected, but it’s on to the next phase of your life. You’ve done one thing for so long, and you were pretty good at it, but now it’s time to reinvent yourself.